Procter & Gamble takes a step forward in online retailing

Procter & Gamble is teaming up with PFSweb to launch PGeStore.com this spring. The site will debut with about 700 products representing about 20 popular brands such as Tide, Pampers and Gillette.

The Procter & Gamble Co., one the largest consumer brand manufacturers with annual sales of $79 billion, is taking its biggest step yet to becoming an online retailer.

Procter & Gamble, which manufactures 300 well-known household brands such as Tide, Pampers, Bounty and Dawn, has signed a multi-year deal with e-commerce and fulfillment services provider PFSweb Inc. to launch PGeStore.com as a full-fledged online retailing web site later in the first quarter or early in the second quarter. The web store, which is being piloted internally by several hundred Procter & Gamble employees, will debut with about 700 products representing about 20 popular brands such as Tide, Pampers and Gillette, says PFSweb CEO Mark Layton. “The store will debut with multiple well-known brands and with a significant opportunity to add more products over time,” he says.

Under the agreement, PFSweb will own and operate the e-commerce site utilizing technology from Demandware Inc. and provide transaction processing, web site development and customer service. PFSweb, which owns and operates eCost.com, No. 128 in the Internet Retailer Top 500 Guide (a PDF version of the company’s financial and operating profile can be ordered by clicking on its name) and provides similar e-commerce services to other companies such as LEGO Brand Retail Inc. and Roots Canada Ltd, will also handle order processing and fulfillment and determine product pricing and distribution. Procter & Gamble will provide the new site with inventory and concentrate on marketing and merchandising activities.

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Rather than build and operate its own web store, Procter & Gamble chose an outsourcing arrangement with an established e-commerce service provider so it can concentrate on how online shoppers interact with its hundreds of brands, says a company spokeswoman. “A major online retailer may carry several of our brands but maybe not all of them,” the spokeswoman says. “This new arrangement lets us learn in detail about those online shopper relationships.”

A hint of the move came in July when Procter & Gamble purchased multichannel men’s grooming retailer The Art of Shaving in July. The Art of Shaving`s web site sells Gillette razors, Braun electric shavers and other brands belonging to Procter & Gamble.

Procter & Gamble in the past has participated in several smaller e-commerce initiatives. It currently generates about $500 million annually selling products wholesale to various online retailers, which accounts for 0.6% of fiscal 2009 revenue of $79.02 billion, the company says. Procter & Gamble currently supplies inventory, such as Gillette, Braun, Duracell and Crest products, to TheEssentials.com, an e-commerce site owned and operated by The Field Companies Inc. Procter & Gamble inherited a small stake in TheEssentials.com when it acquired Gillette Co. in 2005, but later sold its remaining interest to Field, the spokeswoman says. Procter & Gamble also owns a 1% stake in Ocado.com, an online grocer based in the U.K.

As web site development continues and Procter & Gamble and PFSweb gear up for the launch of PGeStore.com, the manufacturer is downplaying its intentions to become a major business-to-consumer e-commerce player and compete head-to-head against established online and multichannel retailers that sell its brands. “We are not a retailer, we are a manufacturer and we did not launch this site with the intention of operating a huge online store,” the spokeswoman says.

In related news, Alice.com Inc. announced that it is launching an e-commerce platform to allow consumer packaged goods manufacturers to create branded storefronts on their own web sites. Among the manufacturers using the platform is Vaska, manufacturer of Herbatergent liquid laundry detergent.

In the arrangement, the participating manufacturers ship their inventory to Alice’s warehouse and Alice handles delivery to shoppers. The manufacturer continues to own the products and sets the products’ prices and Alice charges an undisclosed fixed percentage of the sale.

When shoppers visit participating manufacturers’ sites, product pages feature a “Buy online Alice.com” logo. When a shopper adds an item to her cart, the web site tells her that she can purchase from multiple manufacturers in a single shopping trip and receive one box of bundled goods. Shipping is free on all purchases made through Alice.

“If I’m Sony or Apple, it’s easy to have a siloed online storefront where consumers can just buy my products, but in the household essentials category most people don’t just buy from one manufacturer,” says Mark McGuire, Alice president. “So to replicate the traditional store online is different. If each manufacturer has their own web site the customer won’t go to what could be 12 different sites. That’s where the power of Alice platform comes in.”

Industry analysts say such initiatives are inevitable as most major consumer brand manufacturers such as Procter & Gamble will quickly build up their e-commerce channels and sell more online directly to the public. Historically, many manufacturers have been slow to build a web store and sell directly to the public online because they fear alienating their retailer and distributor networks, says Kasey Lobaugh, retail analyst and principal with Deloitte Consulting LLP. But the retailing market is consolidating. In some segments one or two large chains, such as Wal-Mart Stores Inc. in mass merchandise and Best Buy Co. Inc. in consumer electronics, are able to dictate more terms, including pricing and inventory levels, to manufacturers, he says.

The fact that more retailers such as J.C. Penney Co. are developing additional private-label brands also represents a growing threat to consumer goods manufacturers. “Major consumer brand manufacturers are going to have very aggressive plans for e-commerce,” says Lobaugh. “To maintain control of their brand and deal with the consolidating ranks of retailers, competing private-label brands and shrinking store space, they will be doing much more selling online.”